Gerardo Del Real,
Editor
May 5, 2022
When James Dines passed in April 2022, he left instructions for Nick Hodge to take over providing service to his loyal readers. Since then, former readers of The Dines Letter have been enjoying Nick's monthly issues of Foundational Profits. You can access the latest issue of that letter here.
Editor’s Note: We recently lost a giant in our industry — an absolute original, a pioneer, a visionary. Mr. James Dines was a polarizing individual no doubt, but someone who, in the words of Frank Sinatra, absolutely did it his way. The Dines Letter is Wall Street’s longest running newsletter, published since 1960. Its calls made generations of families “killings” over its more than half a century in publication and earned Mr. Dines serial ink in the the New York Times and other respected rags for decades. In the interview below, my partner and friend Nick Hodge discuss the current markets, but he also has a big announcement to make about Mr. Dines and the legacy of his letter. Enjoy.
—Gerardo
Gerardo Del Real: This is Gerardo Del Real with Resource Stock Digest. Joining me today is co-owner of Resource Stock Digest, co-owner and publisher of Digest Publishing, entrepreneur, colleague, and world famous friend, Mr. Nick Hodge. Nick, it's great to have you on. It's been a bit, how are you?
Nick Hodge: Gerardo, it's good to be speaking to you in a different format. It's typically a Bizarro World, and I feel like we're going to be a bit more streamlined with this interview.
Gerardo Del Real: I feel like that means I should behave myself, so duly noted, sir! Let's get right into it. We are on the verge of a Fed announcement, which is going to be what it is. I’ve got to get your take on the overall indices because, frankly, you were very ahead of the curve in several instances.
One, your energy call over a year and a half ago was absolutely spot on when the talking heads and the experts were, I mean, head-in-the-sand, right? Two, you were really ahead of the curve when it came to taking a stronger cash position and hedging against the overall indices pulling back. You called for a 20-25% sell off. It's materialized exactly as you predicted. And so, I want to get your take on the overall indices before I get your take on the resource space, which is my bread and butter but, of course, you're heavily involved in. What are you seeing next?
Nick Hodge: Like broken clocks, blind squirrels stumble into nuts every once in a while. So those were two nice things to have happen after I said they were going to happen. The energy call was great. And in fact, if I could be a bit self deprecatory, probably sold a bit too early, in fact. Energy continues to be one of the, if not the best-performing sector in the S&P. And so, it was good to ride energy up and to not be in the other sectors.
Let's talk about the other sectors because moving broadly into the S&P for 2022, it's now down some 12% or 13%. And in fact, if you were to wheel your little mouse wheel on the chart and scroll out to a year, you would see that the S&P is now in fact negative for the past 12 months.
If you look at sectors of the S&P, nothing is working. I just said that energy is the best performing. I believe the only other sector of the S&P that's up for the year is consumer staples. It's incredibly defensive out there as you and I have been talking about in various formats for a couple of months now. So, at the risk of sounding like a broken record, I'll tell you that earnings growth — as well as economic growth — are slowing and are slated to continue slowing for the next quarter.
And so, while we're just now approaching a bear market for the S&P, we're in a bear market for the NASDAQ. At the risk of sounding perma-bearish, or doom and gloomish — I fear that the economy could slow for longer, and the stock market could go down even further. The S&P would have to fall some 25% just to get down to where it was before the COVID crash in early 2020. And then, if you got to the COVID lows, you would see another 50% haircut in the S&P from here.
We haven't even talked about The Fed yet, which just said they were going to raise interest rates by another half of a percent. So while that sounds really scary and Boogieman-ish, we're now at the grand high rate of 1% on the federal funds rate, and things are already starting to break. We haven't mentioned the bond market, but already you see growth slowing and stocks falling, and The Fed seems content to let it go that direction. And so, as an investor, or as an individual, you need to take precautions or have taken precautions to counteract what's going on.
Specifically, that would've been getting out of the broader indices in December or January and positioning defensively with a large portion of cash, much larger than you would have in a bull market, as well as owning some precious metals. And we've done well with that strategy so far this year, losing 0%, or in fact up while the S&P is, like I said, down 12%.
Gerardo Del Real: Well said. Breaking news; the Fed has decided to hike rates 50 basis points. That's the largest rate hike since the year 2000. Interestingly enough, gold is up. The overall indices are still higher. Energy is surging up another 5%; that's oil specifically. And the dollar remains firmly above the 103 level. We know that the markets are forward-looking, Nick, and I've been on record saying I don't believe the Fed is going to be able to get off however many rate hikes they are prognosticating — nine or eight or seven or six or five. I'd be very surprised if they made it past two or three.
Whether or not I'm right, you mentioned being correct on calls from the past. How should people be positioning? And you touched on it briefly just now, but how should people be positioning here moving forward? Because there's plenty of ways to still make money in the market. It's the S&P and the Dow and the NASDAQ that are down. You and I have had a phenomenal year.
Nick Hodge: There's a couple of different ways you can position. I talked about precious metals, and there's a lot of ways to do that. We don't have to drill all the way down through paper, physical, and large miners. Having an allocation to gold in some respect is going to behoove you in this period as a flight to safety continue and as inflation continues at 40-year highs. I believe that we'll see gold showing strength.
The other place is cash. Look, I'm a third in cash in my retirement accounts and have been telling subscribers that not only is that cash safe, it's strengthening, as you said, with the dollar index well above 100.
And so quality staples, quality dividend-paying staples, have been at one place. Tobacco stocks is a place that we've had some success over the past three months. Industrials that are providing equipment to the EV space. I'm not going to give away the name but we've been in a transmission company that has done quite well.
But on the whole, I believe it's watching and waiting and then beginning to deploy capital to the long side as we get through this bear market and/or recession. You'll remember that the 2-10 yield curve inverted recently, and that's a pretty sure sign that a recession is manifesting.
And the other thing I'd say is that the stock market and the debt markets aren't the only place to park capital. You're aware I bought a house a couple of months ago, in fact, almost exactly two months ago. That home has appreciated 10% in value in the past two months according to a popular home estimation website. And so, I understand that home affordability has gone down as interest rates have crept up. But home prices on the whole haven't seemed to follow along that trajectory yet. And so, all the dollars in the system — despite the Fed's hawkish stance now — all the dollars that were printed over the past 12 years are still in the system and have to go somewhere. And right now, it looks like home prices and precious metals.
Gerardo Del Real: I absolutely agree with everything you just said. And I just want to be absolutely clear for everyone out there; that's 10% in the past two months, not year over year, correct?
Nick Hodge: That's correct.
Gerardo Del Real: Excellent. Now, I have to ask you about a couple of other things. I know that you are presenting at the Vancouver Resource Investment Conference coming up here. I'd love to hear what you're talking about.
Nick Hodge: The title of the talk, Gerardo, is “Macro Bear Hungry for Golden Lollipop with Uranium Center.”
Gerardo Del Real: Is there a cool acronym for that? Should I be reading into that?
Nick Hodge: Oh, gosh, I didn't, but I should have spent more time sketching that out and could have had something fun. But no, I think the title is pretty specific and covers everything we just talked about in the past couple of minutes, except uranium. A macro bear market developing, potential recession, stocks falling, precious metals holding their value and likely going to see gold back at $2000 or higher in the next six months to a year. And then, energy which we've already noted in this case in the form of uranium, which is a market I’ve followed for some time now. So that's what I'll be talking about and how they interrelate, I suppose. And then companies, of course, within those sectors that I've vetted and perhaps invested in personally.
Gerardo Del Real: Excellent. Before I let you go, we had a giant in our industry pass recently, Mr. James Dines. And so, obviously, somebody that was an absolute original in our space, a pioneer, a visionary. A polarizing individual no doubt but someone who, in the words of Frank Sinatra, absolutely did it his way. So, obviously condolences to all of his loved ones and people that cared about him. And I know we had the good fortune to spend some time with him, and you had the privilege and the honor of helping publish his letter and his guidance for quite some time. And with that, I think you have an announcement that I want to congratulate you on, and one that I think is absolutely well deserved. You care to share, Nick?
Nick Hodge: Sure. Yeah, Mr. Dines, I'm not sure if his eyes were blue but his suits were certainly colorful and his shoes, has sadly left us and left a large hole in the newsletter world for thousands of people who came to rely on his insights, his advice, and prognostications over the last, call it, 60 years. And so, I was fortunate enough and honestly humbled to be asked to take over his two newsletters, The Dines Letter and Interim Warning Bulletin.
We are in the process of doing that now, and in the middle of May, former Dines members and Interim Warning members will begin receiving my publications. And so, I feel a debt of gratitude, I guess, to Mr. Dines, and I feel a personal responsibility, almost like Spider Man, right? With great power comes great responsibility to shepherd his readers and keep them drinking upstream from the herd as he did for so long. And in some cases, I almost feel inadequate, right? Going back through the decades of superlatives and awards that were lauded on Mr. Dines, obviously attributable to the calls that he made in the market and how many people he was able to help.
I don't have Hodgeisms and I don't draw charts by hand, but hopefully I can make the right calls at the right time. Someone told me once that Mr. Dines didn't get all his calls right, but what he did get right most of the time was knowing when to stand up on the surfboard. That's a surfing analogy, right? Whether or not to stay in the water, stay down, or get up and surf.
And so, I feel like that's very appropriate. Because if you can get the macro direction of the market right, and certainly the overall direction of other sectors in the market, then it becomes much easier to be a stock operator within those sectors, because you have... I guess I'll just keep the nautical theme going; the wind at your back. And so, that's what Mr. Dines was really good at; flashing buy and sell calls on the major indices, flashing buy and sell calls on major sectors of the market. Of course, the Original Goldbug, the Original Bull on Uranium, the Original Cannabis Bull, the Original Crypto Bull. Made monstrous calls on those sectors at the right time to "make people killings," as he called it, and I can only hope to do half of what he did, and will certainly strive to do so.
Gerardo Del Real: If his last call was to hand over the reins to his subscriptions and his subscribers, which if you knew Mr. Dines at all, you knew how much he cared about his subscribers; I think he's going to end up being proven absolutely spot on in his call to hand that over to you, Nick. Congratulations! I'm excited to see what you do with it as always.
And listen, we'll put a link up to the conference. If anyone is out there, I encourage you to go say hello. I was definitely looking forward to going. I am not sure that I'm going to be able to quite make it this go round, but nevertheless, please stop and say hello.
Nick, anything else to add to that?
Nick Hodge: No, just that I feel like I've got the Golden Ticket and I'm taking over the Chocolate Factory, and I hope you like the products that come out of it.
Gerardo Del Real: Fascinating discussion as always, Nick. Thanks for your time.
Nick Hodge: Thanks, Gerardo.
Gerardo Del Real
Editor, Daily Profit Cycle